Can someone explain the "HMRC has 12 months to launch tax investigation" rule for me?

As I understand it this rule means that if HMRC is going to launch a tax investigation into any one tax year they need to do it within the 12 months of when you filed your tax return (if the return is on-time).

So if you filed your 2016/17 tax return on 9 June 2017, HMRC would have until 9 June 2018 to investigate it. And once that deadline is past can they investigate it any further IF future tax returns don't give them any proof or evidence that something is wrong with that future return (ie: the next return)?

Or I know there is a rule where HMRC can look into your back taxes 4 or 6 years. But can they select any of the previous returns in that 4 or 6 year period even if the 12-month window for that return has already passed if they find nothing wrong with returns after that year?

Or I guess another way I can try to explain what I am trying to ask:

Say the date is 21 February 2018 and I've followed the previous returns on the dates listed below:

In the return/date examples listed above could on today's date (21 Feb 2018) HMRC choose to randomly investigate my 2015/16 tax return (filed on 10 June 2016) even though the 12-month investigation window would have ended on 10 June 2017? Or if they wanted to investigate that specific return, now that the 12-month window has closed, would they need to prove something wrong with my 2016/17 return (which the 12-month window is still open on) and then say "now we believe because we found X (X being an incorrect number or other problem) we want to see your information for your 2015/16 return?

Basically, I'm wondering if HMRC can pick and choose which return to check in the last 4 or 6 years or if they need to have proof the most recent return is incorrect before they could look into past returns before the most recent?

Section 9A is the HMRC authority to check a return. It allows then to enquire into any tax return within the prescibed time - normally 12 months from the day it was filed. They do not need to have a reason or a suspicion to check a return. A percentage of checks are carried out randomly.

HMRC cannot randomly check a return outside the time limits. But they can make a discovery that leads them to believe that tax is unpaid. If they have such a belief they can make an assessment to recover any tax that they believe is unpaid. Normally they will write to you to say that they believe your self assessment is wrong and why. They may ask for information to help clarify the position and help them determine the amount of tax that might be due.

It is not the case that you can get away with underpaying tax by crossing your fingers and hoping that your tax return is not selected for enquiry. The discovery provisions are there to ensure that the correct tax is paid.

To add, if HMRC believe that any understated tax is by deliberate action, they have 20 years. Since the way you have phrased your question suggests that you know there is a deficiency arising from a previous Return, and that you have no intention of notifying them of the deficiency, then you could find yourself caught by this.

The only limitation is if they can make an assessment for the year that there is underpaid tax that they can prove

You should also be aware that if it is anything to do with offshore income after 1st October 2018 you can be looking at 23 years back. HMRC have also issued a consultation document on increasing the 6 year time limit to 12 years for offshore or foreign income.

If you know there is a deficiency in one of your tax returns then I would recommend that you get some experienced advice and consider making a voluntary disclosure. After all if you have been innocent or careless in making an incorrect return and after realising it you do nothing then you’re now deliberate.

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The only limitation is if they can make an assessment for the year that there is underpaid tax that they can prove

You should also be aware that if it is anything to do with offshore income after 1st October 2018 you can be looking at 23 years back. HMRC have also issued a consultation document on increasing the 6 year time limit to 12 years for offshore or foreign income.

So what are HMRCs limits if you didn't do a NRCGT thing, owe no tax, and are still blissfully aware that you should have done one and are racking up penalties?